Participating financing is a hybrid area specifically structured for
each real estate transaction. It is a hybrid in that it takes the
place of debt – either senior or secondary, but performs the function
of equity. It provides high leverage for a transaction, often to 95%
of cost, which then replaces most of the equity required while being
debt on the collateral, not part of the ownership. The participating
portion means that upon the payoff of this debt, a portion of the
projects profits are paid to the Investor along with the original debt
investment.
The participating debt structure is often less expensive to the
developer, replacing equity requirements of 50% or greater of profits
with debt participation that typically is in the 20% to 30% range. The
trade off is that equity cannot foreclose on a project, but debt can.
The lower cost but higher leverage issue is one best discussed with
your Account Executive to determine what
is available and best for the project.
Participating debt
may be non-recourse and is dependent upon the project, borrower
quality and experience. While nationwide in scope, most investments
are limited to major population areas. All property types are
considered, including land acquisition and development which is very
often a good candidate for this type transaction.
